The Morning Ledger: Dell Gets More Time to Sway Shareholders

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The Morning Ledger from CFO Journal cues up the most important news in corporate finance every weekday morning. Send us tips, suggestions and complaints: david.hall@wsj.com. Get The Morning Ledger emailed to you each weekday morning by clicking here. Follow us on Twitter @CFOJournal.

Michael Dell and Silver Lake have a few more days to try to save their buyout plan. The company delayed a shareholder vote at the last minute yesterday after it seemed likely to fail, the WSJ reports. One big reason for the delay was that investors owning about 23% of the stock eligible to vote didn’t cast ballots by midnight Wednesday, and those would have been counted as “no” votes according to the structure of the deal.

Now Dell and its potential buyers have until July 24 to drum up support by getting investors on the sidelines to say “yes” or by swaying opponents with a sweetened offer—or they can try persuading shareholders to take the deal because nothing better is coming. Carl Icahn and Southeastern Asset Management, meanwhile, will be fighting to hold onto their allies in opposing the deal. Mr. Icahn and Southeastern took aim at the company for delaying the vote, saying, “This is not the time for delay but the time to move Dell forward.”

The delay doesn’t just drag out the fight, the Journal notes. It likely will cost Dell more money. In the quarter ended May 3, the company spent $86 million on merger-related costs.

THE DAY AHEAD:

The earnings rush is a bit lighter today—just a few early morning results from General Electric, Honeywell and Whirlpool.

Markets flash: Asia ended mostly lower with choppy trading in Japan ahead parliamentary elections this weekend. European shares are in negative territory and DJIA futures are also lower.

EXCLUSIVE ON CFOJ:

How Google is spending its ‘lumpy’ capex.Google may have reported lower-than-expected second-quarter revenue, but the company said its capital expenditures doubled, Emily Chasan reports. The Internet search giant reported capital spending of $1.6 billion in the quarter, up from $774 million a year earlier and a third higher than in the first quarter. “CapEx is just inherently lumpy,” CFO Patrick Pichette said on the conference call. He noted the company is spending heavily on infrastructure, construction of data centers as well as production equipment. Google also mentioned its effective tax rate jumped back up to 24% in Q2. In the first quarter, the company’s tax rate had fallen to 8% after Congress retroactively extended the 2012 R&D tax credit, forcing companies to recognize the entire value of that credit in a single quarter.

Verizon pension gets boost from rising rates.Verizon Communications‘ pension deficit has been sliced by almost half this year because of rising interest rates, according to CFO Fran Shammo. An increase in discount rates, used to calculate the present value of future pension obligations, helped reduce the company’s unfunded liability by roughly $4 billion, he said. Verizon reported an unfunded liability of $8.5 billion at the end of last year, owing roughly $26.8 billion and holding of $18.3 billion in assets. “The unfunded liability will continue to close,” if interest rates keep rising, he added in an interview with Vipal Monga. That would mean fewer and lower cash contributions to Verizon’s pension plans.

CORPORATE NEWS:

Microsoft CFO: ‘We know we have to do better.’Microsoft took a $900 million charge on its Surface RT tablet, as its Q4 results missed revenue and profit expectations, the WSJ’s Don Clark reports. Amy Hood, overseeing her first earnings announcement since becoming chief financial officer recently, acknowledged that the company isn’t satisfied with its performance. “I want to be very clear: We know we have to do better, particularly on mobile devices,” she said in an interview. Microsoft estimated Thursday that consumer PC sales declined by more than 20% in the fourth quarter. Ms. Hood told analysts that first-quarter sales of Windows software to computer makers are expected to decline by a percentage in the midteens.

Morgan Stanley CFO says strength in Europe helped boost profits.Morgan Stanley posted better-than-expected Q2 earnings and surprised investors by announcing plans to repurchase its stock for the first time since the financial crisis, the WSJ reports. “The buyback was the big news,” said Jeff Harte, a bank analyst with Sandler O’Neill + Partners. While the program, to take place through March 2014, adds up to less than 1% of shares outstanding, Mr. Harte noted it “gives a message” that regulators are “more comfortable with Morgan Stanley’s capital position than we thought.” CFO Ruth Porat told the Journal in an interview that seasonal strength in Europe and heavy use of the firm’s electronic-trading platforms, along with hedge funds’ use of the firm’s prime brokerage unit, helped drive the results. Morgan Stanley’s stock-trading revenue was the highest among the big U.S. banks in the second quarter.

G-20 set to back action plan on corporate taxes. The OECD just unveiled its action plan for tackling corporate taxes at a meeting of G-20 finance ministers in Moscow, the FT reports. Pascal Saint-Amans, the top tax official at the OECD, said the initiative would force up tax rates for multinationals that organize their affairs so they paid little tax. He said: “They know the golden age of ‘we don’t pay taxes anywhere’ is over.” The plan seeks to modernize the international tax system to match the increasingly globalized operations of companies, and move away from a system in which tax administrations are largely focused on what happens within their national borders, the WSJ says. The plan will receive the public backing of finance ministers from the U.K., Germany, France and Russia, but the OECD believes it has the support of all G-20 members.

Washington Post diversifies … into boilers.Washington Post is buying Forney corp., a maker of parts for industrial furnaces, from United Technologies for an undisclosed price. The un-glitzy deal is in keeping with a strategy of investing in companies that have strong earnings potential, Post Chairman Donald Graham tells the WSJ. Owning a range of businesses is a philosophy associated with Warren Buffett, whose Berkshire Hathaway is a big shareholder in Post Co. and who was a longtime board member and remains close to the Graham family. Mr. Graham played down any similarity but acknowledged that Mr. Buffett’s investing philosophy might have “rubbed off” on everyone who worked with him.

ECONOMY:

Detroit bankruptcy filing sets record. Detroit filed for federal bankruptcy protection, making the automobile capital the country’s largest-ever municipal bankruptcy case, the WSJ reports. The city has liabilities of more than $18 billion, and the move to restructure the debt is bound to set off months, if not years, of legal wrangling, asset sales and cuts to benefits for Detroit workers and retirees, including 20,000 on city pensions. Some Detroit business leaders, who have seen a rise in private investment downtown despite the city’s larger struggles, said bankruptcy might finally lead to an overhaul of city services and to a plan to pay off some reduced version of the overwhelming debts, the NYT reports. “The worst thing we can do is ignore a problem,” said Sandy K. Baruah, president of the Detroit Regional Chamber. “We’re finally executing a fix.”

Moody’s affirms U.S. triple-A rating. Moody’s raised the U.S. sovereign outlook to stable from negative and affirmed its triple-A rating, citing steady growth despite reduced government spending, Reuters reports. “We feel that we have enough information on the debt trajectory at this point to make a conclusion even without information on any possible further actions in Washington,” said Steven Hess, lead U.S. sovereign-credit analyst at Moody’s . Even the possibility of another debt-ceiling debate this year is unlikely to hurt the rating, Mr. Hess said.

REGULATION:

High-speed traders’ safeguards scrutinized. A string of computer glitches that have plagued markets amid a burst of high-speed trading is sparking a widening crackdown by Wall Street overseers, the WSJ’s Scott Patterson reports. Finra is conducting a probe of high-speed firms’ trading algorithms and the controls surrounding their trading technology, according to an examination letter sent to about 10 firms this week. Responses to the letters could prompt additional probes or result in marching orders for the industry to improve risk-management, said Thomas Gira, head of market regulation at Finra. “We’re trying to make sure that firms are aware of how their ‘algos’ are constructed and how they’re operating,” Mr. Gira said in an interview.

THE WEEKEND READER

Every Friday we select a handful of in-depth articles we think are worth a bit of your valuable weekend time, either because they peel back the layers on a compelling business story, or somehow make us look at business in a different light.

Do sports make the female executive? An Ernst & Young study on senior female executives and sports activity found that the higher the job level of women in a business, the more likely it is that they played high-school or college-level sports. Additionally, 19 of 20 women occupying a C-level position classified themselves as athletic teens. Women in middle levels of management professed less athletic activity. The FT’s Gillan Tett suspects that girls who play sports at a young age learn that “it is acceptable to compete aggressively” and that it is possible to be successful without “looking good.” Tett worries that today’s cultural messages and cyber distractions—and cuts to public-education budgets that affect athletic programs—are threatening to rob young girls of a path to success. “If we want to get more strong female leaders, we must celebrate competition at a young age,” she concludes. “Or, at least, teach them the links between struggle and success; even—or especially—in an age of instant gratification where kids prefer to say ‘don’t sweat it.’”

Songs of commerce. At Northwestern University, Andrew Mason majored in music. Post-college Mr. Mason started the daily deals site Groupon in 2008 and within two years it was considered the fastest-growing company in history. Last February, with stock down 83% from its IPO perch, Mr. Mason was fired from his CEO perch. He went back to music, but this time with a half-billion stake in his former company to fund “Hardly Workin’,” a motivational album for business people. The album, “a collage of 80s and 90s pop-music styles,” writes the New Yorker’s Dana Goodyear, “name-checks successful leaders such as Steve Jobs, Jack Welch and Charlie Munger (‘You got to stay focused and retain that hunger/Or you’ll never ever ever be the next Charlie Munger’).” Another tune, “My Door is Always Open,” “climaxes in glorious harmony,” as an employee and upper-level management find redemption.

Why everybody loves Tesla.Businessweek’s cover story by Ashlee Vance is a love letter to Tesla Motors, the electric-car company, and its CEO Elon Musk, who, when not running Tesla, is developing commercial space programs at his company Space X. Tesla recently posted its first profitable quarter and sales of its $70,000 Model S vehicle are expected to hit 21,000 in 2013. The company’s “ambition isn’t merely to win the title of hottest car in Silicon Valley,” Vance writes, “it’s to simultaneously become the next Ford Motor and ExxonMobil—to be a profitable, mass-scale manufacturer and fuel-distribution network. Not even Henry Ford tried to pull all that off.” Yet Tesla remains very much a Silicon Valley company complete, with an industry-disruptive retailing strategy—Tesla wants to cut out car dealers—and employees leaving for their own startups. A Detroit insider tells Vance that established car players believe Tesla’s console technology, complete with 17-inch touchscreen, is almost too good. “We’re all waiting to see if there are accidents.” Meanwhile the company will need to surrender some of its control—currently everything is done in-house—if it hopes to bring down prices.

CFO MOVES:

CafePress, a company that offers customized printing on a variety of products, recently appointed Garett Jackson to the newly created position of chief information officer for the Louisville, Ky.-based company. He was previously the chief financial officer of National Patient Account Services Inc.

KemPharm, a biopharmaceutical company in North Liberty, Iowa, has named Gordon K. “Rusty” Johnson to the newly created roles of chief operating officer and chief financial officer. Prior to joining KemPharm, Mr. Johnson was president and chief operating officer of Citius Pharmaceuticals.

Optos, a London-based company offering medical retinal imaging, announced that Louisa Burdett will step down from her role as chief financial officer. Ms. Burdett will remain with the business until the end of September to facilitate the handover of responsibilities. Robert Kennedy, Optos’s director of finance and company secretary, will serve as interim CFO.

Nearly across the board, mid-market executives are hiring new employees, buying new technology solutions, acquiring businesses to reach new markets and preparing IPOs, according to a Deloitte survey of more than 500 mid-market executives. But companies are running up against a number of constraints as they seek to expand, particularly in acquiring and retaining skilled talent.